Animal Spirits

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Emerging Markets Update

There was no respite for global equity markets this week as volatility continued to spike and any signs of weaker US earnings sent share prices sharply lower. In Europe, a series of underwhelming data prints, combined with fighting talk from the Italians, ensured that there was no respite for the region’s equities. Meanwhile, investors began to refocus on Chinese growth concerns amid ongoing trade tensions and higher global equity volatility. With China being the key delta for global growth, the international focus on the country is likely to persist but it is unlikely the root cause of the US equity market sell-off. It seems more plausible that hawkish Fed speak, combined with heavy positioning and fears over peak earnings in the US, are the main culprits despite what has been a solid third-quarter earnings season for US corporates. The recent weakness in oil is perhaps another sign of the impact of higher real rates in the US beginning to weigh on a well-owned position, which in turn is perpetuating the weaker growth narrative that equity investors fear.